Bad Faith Alert: Pre-Suit Affidavits are Fertile Ground for a Bad Faith Claim
An insurer’s refusal to execute an affidavit in connection with a time-sensitive pre-suit demand could be the basis for a bad faith verdict against the insurance carrier. A lesson learned from this federal district court opinion is that insurance carriers must thoroughly explain to their insureds the necessity of timely and thoroughly completing the affidavit and the ramifications for noncompliance, or be faced with extra-contractual exposure. Mosley v. Progressive American Insurance Co. et al., Case No. 0:14-cv-62850, (S.D. Fla. Nov. 25, 2018).
In November of 2008, Progressive policyholder Earl Lloyd inadvertently hit an 11-year-old boy (Wallace Mosley) with his vehicle after Mosley entered the roadway on a scooter. One week later, Mosley’s lawyer sent Progressive its first notice of the incident including a letter of representation and the accident report. Lloyd’s policy with Progressive included bodily injury limits of $10,000 per person and $20,000 per occurrence. Due to the nature of the accident report, Progressive tendered a $10,000 payment to the Mosley’s on its own accord.
A few days later, Mosley’s lawyer sent a settlement demand which included an affidavit for Lloyd to complete and execute within 14 days. Per the settlement offer, if Lloyd’s affidavit indicated no viable assets, the claim would be dropped – otherwise, the suit would be filed. Progressive called Lloyd to inform him about the affidavit; however, Lloyd refused to cooperate. During the call, Lloyd told the Progressive claims agent that he was a sovereign citizen descended from Moorish heritage and was immune from Florida law and liability. Progressive did not follow up with Lloyd regarding the affidavit and did not give him any warning of the potential exposure above the policy limits for not completing the affidavit.
Progressive On the Hook
As one would guess, Lloyd never filled out the affidavit. The suit was filed and the case proceeded to trial where a jury awarded Mosley $22,663,058 against Lloyd. In a not-so-surprising turn of events, Lloyd assigned his bad faith claim to Mosley. Thereafter, Mosley went after Progressive for bad faith, alleging that Progressive did not follow up with Lloyd regarding the affidavit, did not inform Lloyd of the 14-day deadline, and did not convey the opinion that Lloyd was at fault for the incident.
Although timely executing the affidavit was an obligation of policyholder Lloyd, Progressive was now being pursued liability. At Lloyd’s deposition, he testified that “if somebody would’ve explained this to me, [that completing the affidavit was] all I had to do to be alleviated of this problem, it would’ve happened.”
Summary Judgment Denied
Progressive filed for summary judgment which was ultimately denied by U.S. District Judge Beth Bloom. According to the order, there was sufficient evidence to create a jury question regarding whether Progressive breached its duty of good faith under the Boston Colony standard.
The 1980 Florida Supreme Court decision in Boston Old Colony Insurance Co. v. Gutierrez set forth insurers’ good-faith obligations to policyholders that have been used as a guide ever since. In order to avoid liability for bad faith under Boston Old Colony, an insurer must
- advise the insured of settlement opportunities,
- advise the insured as to the probable outcome of the litigation,
- warn the insured of the possibility of an excess judgment,
- advise the insured of any steps that may be taken to avoid an excess judgment,
- investigate the facts,
- give fair consideration to reasonable settlement offers, and
- and settle when reasonable.
Under this standard, Judge Bloom determined that the nature and extent of Progressive’s actions were in dispute and therefore, summary judgment was inappropriate. Following the denial of summary judgment, the case proceeded toward a trial date of December 10, 2018. Six days prior to the start of the trial, Progressive and Mosley (as assignee) settled their dispute, the details of which remain unknown.
One thing is certain: insurers must diligently communicate with their insureds about the potential of an excess judgment and be thorough in conveying settlement opportunities. Simply informing the policyholder about the requisite affidavit is not enough; insurers must relay the importance of the affidavit and take sufficient steps to ensure it gets prepared. Otherwise, insurers may be left with a jury question on a bad faith action, if the insured fails or refuses to complete the affidavit and an excess verdict is later entered.